May 2008

Smoking bans are sweeping Europe. New research suggests that these bans reduce smoking amongst those directly affected and their families and peers, creating what could be called a “public health multiplier”.

The European Central Bank’s Governing Council continues to expand as new economies adopt the euro. This column presents empirical evidence that the optimal central bank committee size is seven to ten members – far fewer than the 22 members the ECB will have come 2009.

Low inventory levels might seem to belie the theory that soaring commodity prices are attributable to low interest rates. In this column, Jeffrey Frankel defends his argument, pointing to production decisions and cross-country comparisons.

Prior to 1914, Europe was economically integrated across political borders. The “second Thirty Year War” (1914-1945) put up barriers that post-war European integration has been undoing since the 1950s, returning Europe to a familiar state of economic affairs.

India’s trade liberalisation in the 1990s produced large gains, but it imposed significant costs of adjustment on communities with industries that lost tariff protection. A new study shows that those communities’ educational attainment lags behind the rest of India due to the intersection of trade adjustment, poverty, and schooling costs.

Central banks and international institutions often call for greater transparency in financial markets. This column argues, however, that in a context where central banks make inevitable forecast errors, it is efficient for central banks to disseminate information to only a limited audience.

Women in rich countries largely enjoy gender equality while those in poor countries suffer substantial discrimination. This column proposes an explanation for the relationship between economic development and female empowerment that emphasises changes in the incentives males face rather than shifts in moral sentiment. Technological change that raises demand for human capital may give men a stake in women’s rights.

The Burmese victims of Cyclone Nargis are tragically neglected by their terrible government and also suffering from insufficient international attention. We might help them by aiding private organisations already on the ground in Myanmar.

EU-Chinese trade relations are disappointingly stagnant. This column proposes a new European strategy for China, suggesting a small, feasible bargain to jump-start economic engagement with the emerging giant.

The financial crisis has put the US Federal Reserve’s performance under the spotlight. As the United States reassesses its financial regulatory system, this column makes the case for central bank independence.

The EU budget is supposed to reflect benevolent principles, but some suspect that baser motives may guide member states bargaining over the allocation. This column summarises evidence demonstrating that power politics play a large role in building the EU budget, while benevolence is rather lacking.

Berlusconi’s new government faces tough economic challenges. Here one of Italy’s leading economists highlights three concerns the government must tackle in its first year: fiscal federalism, electoral reform, and curbing tax evasion.

Emerging economies are increasingly moving from external to domestic debt. Conventional wisdom says that this is an improvement that signals a lower risk of sovereign default. But this column presents evidence that history disagrees and argues that defaults are likely to persist.

The US Congress recently denied President Bush trade promotion authority and scuttled the US-Colombia trade agreement. This column discusses the importance of “fast track” negotiating authority in liberalising global trade and presents an explanation of the politics that led to its recent lapse.

How do NGOs spend their development assistance? This column discusses research showing that NGO aid is no better targeted to the neediest countries than state aid agencies either by choosing needier countries, or by entering un-chartered waters and trying to excel where state aid is most likely to fail.

Europeans are now echoing American concerns about China’s trade surplus. This column argues that there is little reason to worry about Europe’s trade deficit with China nor evidence that China should be pressed to revalue the renminbi.

Economic globalisation is a political phenomenon. This column presents new evidence on the Anglo-American wheat trade in the eighteenth century and explains how politics, war, and natural disasters thwarted economic integration.

Central banking has undergone dramatic change in recent decades, and many banks now favour transparency in communicating their policies and forecasts. What does this mean? This column argues that our understanding of the role of central bank communication is still in its infancy and it remains unclear what constitutes an optimal communication strategy for central banks.

Information is at the heart of the recent liquidity crisis: Who bears risks? Who has losses? Who is insolvent? This column, which draws on the author’s recently published book, 'Information and Learning in Markets', explains why solving the crisis requires closing such information gaps.

The US Federal Reserve has used unorthodox policy instruments to reduce recent financial turmoil. In this column, the author of CEPR Policy Insight 23 argues that the crisis raises more fundamental questions about core tenets of modern monetary orthodoxy – inflation targeting and central bank independence.

Debates about immigration policy often assume that legal barriers are crucial to preventing massive influxes of immigrants. This column argues that, historically, most potential immigrants chose not to relocate, even when the cost of immigrating fell.

Past performance is no guarantee, but history tells us that the equity risk premium has been persistent. This column shows that British investors enjoyed relatively high returns in the nineteenth century, though today’s UK market differs greatly from its formative ancestor.

India stands out from other emerging economies because its growth has been led by the service sector rather than labour-intensive manufactures. This column summarises recent research showing that India has a long history of strength in services, and its service-led development may play to historical strengths rather than hindering its progress.

In response to financial turmoil, supervisors are demanding more risk calculations. But model-driven mispricing produced the crisis, and risk models don’t perform during crisis conditions. The belief that a really complicated statistical model must be right is merely foolish sophistication.

The global financial system may be caught in a downward spiral as market and funding illiquidity reinforce each other. The author of CEPR Policy Insight 22 presents a radical proposal that would break the feedback loop by not valuing illiquid assets at market prices under crisis conditions.

Some industries, such as airlines, are seemingly perpetually abuzz with merger discussions. This column summarises how economic theory might explain such talks, and what it means for merging companies and consumers.

The earnings premium for skilled labour has increased dramatically in recent decades. Yet, as this column shows, Americans are not acquiring significantly greater skills in response to this change. The resulting gap will increase US income inequality in the coming decades.

There is increasing public concern about gambling, and the UK government recently established a Gambling Commission. This column examines England’s historical experience with regulating and taxing gambling to draw lessons for the present.

Art auctions are a testing ground for economic theory. This column summarises recent research that uses extensive data on works of Latin American art to study auction outcomes. Most puzzlingly, there is a persistent “afternoon effect,” in which identical goods auctioned later command lower prices.

There is significant public concern that globalisation heralds the deindustrialisation of rich economies. This column explains why offshoring and immigration are signs of economic vitality and manufacturing strength, not weakness. The key is to address distributional concerns so that all benefit from globalisation.

Financial regulation never works the way it should. Here one of the world’s most experienced analysts of the global financial system presents some remarkably clear thinking on why we should not just do more of the same. An alternative model for policy action is proposed.